Further Tier 1 capital needs for the full implementation of the EU specific Basel III reform are minimal, the EBA Report finds

The European Banking Authority (EBA) today published its third mandatory Basel III monitoring Report which assesses the impact that the EU implementation of the Basel III framework will have on EU banks at the full implementation date, i.e. 2033. The additional impact considers the application of all EU requirements, as reflected in the Capital Requirements Regulation (CRR3), i.e. Pillar 2 requirements, and all EU specific capital buffers. In terms of minimum required capital, the impact has further decreased in relation to the previous reference date of December 2022. The impact is minimal in terms of estimated Tier 1 capital shortfall, while the total capital shortfall is estimated at EUR 5.1 billion.

For the EU banking sector as a whole, the capital that needs to comply with the Basel III reform amounts to EUR 0.9 billion of Tier 1 capital. This means that the additional capital needed can easily be raised over the remaining period until full implementation.  For the purpose of comparison, the Annex to the Report shows the impact of the baseline Basel III proposals, i.e. prior to the implementation of the EU adjustments, or the adaptation of specific discretions, that are part of the revised CRR3.

Overview of the results

Overall, the results of the mandatory Basel III monitoring exercise show that European banks' minimum Tier 1 capital requirement would increase by 7.8% at the full implementation date in 2033.  The main contributing factors are the output floor and operational risk.  The overall minimum Tier 1 capital requirement for large and internationally active banks (Group 1) would increase by 8.6%. The requirements for the global systemically important institutions (G-SIIs, subset of Group 1) and for Group 2 banks would increase by 12.2% and 3.6%, respectively.

Note to the editors

• The Report assesses the impact of the EU specific implementation (CRR3) on EU banks of the final revisions to the frameworks of credit risk (split into four sub-categories), operational risk and the leverage ratio. In addition, the introduction of the aggregate output floor is considered. The Report further quantifies the impact of the implementation of the new standards for market risk (FRTB) and credit valuation adjustments (CVA).
• The Report shows the results of the EU specific implementation separately for Group 1 and Group 2 banks. Group 1 banks are those with Tier 1 capital more than EUR 3 billion, and they are internationally active. All other banks are categorised as Group 2 banks.
• The Report shows the results of the EU specific implementation separately for three broad business models: ‘universal’, which is a business model offering most of the banking services, ‘retail-oriented’, which focuses on retail clientele, and ‘corporate-oriented and other’, which incorporates the remaining institutions.
• An interactive tool showing the main results is made available for analytical purposes. The official figures and conclusions are the ones presented in Report. Therefore, any interpretation based on the data provided within the visualisation tool must be done with caution.
• The Annex to the Basel III monitoring Report shows the impact of the implementation of the baseline Basel III framework prior to the inclusion of additional features that are included in the CRR3/CRD6 and EU adaptation of Basel III discretions.
• The drop in the impact expressed in Tier 1 minimum required capital is mainly attributed to the fact that G-SIIs already implemented in 2023 the additional leverage ratio requirement of 50% of G-SIIs surcharge atop the 3% minimum required capital of the leverage ratio exposure measure. This led to an increased requirement for the current implementation, resulting in a reduced impact when compared with the full implementation capital requirements, which remained stable for the leverage ratio. This is reflected in the reduced impact of G-SIIs with spillover effects to Group 1 banks and all banks, of which G-SIIs are a subset. On the other hand, the impact on Group 2 was not affected by this implementation.
• The impact shown in the point-in-time analysis of the third mandatory Basel III monitoring Report is not directly comparable to the previous mandatory exercises. Thus, when comparing the results over time, Table 5 of the Basel III Monitoring Report should be considered.